Dewhirst profits slump on back of M&S misfortunes

DEWHIRST, THE clothing manufacturer, yesterday revealed a 27 per cent slump in profits last year as a direct result of the misfortunes of its biggest customer, Marks & Spencer.

The group, once thought of as the most efficient supplier of clothing to M&S, saw pre-tax profits plummet from pounds 31.4m to pounds 23.0m as the leading retailer began to cut its prices.

Tim Dewhirst, chairman, said: "The dramatic reduction in consumer demand from June onwards was not anticipated." He added that the outlook for the first half of 1999 was "not encouraging".

Sales of Dewhirst clothes rose by 4.6 per cent last year to pounds 380.2m as prices were cut. But operating margins were slashed by a fifth and earnings per share fell by nearly a third to 12.11p.

Dewhirst has led the pack of M&S suppliers wanting to cut its costs by shifting its manufacturing abroad. As the full extent of the trouble at M&S became apparent, Dewhirst brought forward its plans.

In September, M&S, which traditionally prides itself on selling British- made clothes, gave the green light to all suppliers wanting to relocate, saying it could no longer pass on higher costs to customers. Dewhirst shut six factories in the North-east and Wales as it shifted production of trousers and blouses to Morocco. More than 1,000 UK manufacturing jobs were lost, costing Dewhirst pounds 2.2m.

Analysts yesterday said they were disappointed at the management's pessimistic outlook. "But if M&S continues to lose share of the market it could drag Dewhirst down with it," said one.

In common with rivals like Courtaulds and Coats Viyella, Dewhirst has underperformed the market by over 60 per cent in the past year. Forecasts for earnings in 1999 are around 13.6p per share. Shares fell 2.5p to 74p yesterday, putting the company on a forward p/e of just 5.4, substantially below its peers.

Analysts believe the rating has fallen too far; this is not a company about to go bust. Profits may be flat this year but are likely to pick up next. Now may be the time to buy.